Letter of Advice

Topics: Balance sheet, Dividend, Financial statements Pages: 5 (1516 words) Published: September 11, 2011
Nelson & Irvine
Accounting Consultancy
18 Copenhagen Street

Mr Joe Doyle
62 Highfields Avenue

9 September 2010
Dear Mr Doyle
Joe Doyle’s Investment and Business Structure Enquiry
Please find below advice on investment options for your photographic studio concerning business structure and the security of an investment in Billabong International Ltd. 1. Facts
You have come into $500,000 worth of inheritance which you wish to invest $250,000 into the initiation of a photographic studio business and the other $250,000 in shares at Billabong International Ltd. You also indicated that Paul Jones has offered to invest $50,000 in the studio wishing to have no further monetary or non-monetary input into the business. You are now unsure of what business structure to use; partnership or company, and whether Billabong will be a secure investment for your future. 2. Company or Partnership?

You indicated that safety and security are of great importance to you and Nelson & Irvine will therefore use this as the governing criteria when providing advice. When considering the financial safety of different business structures, the level of liability should be considered. Unlimited liability is a condition in which owners of a business are personally held responsible for any debts created by the business. A partnership has the advantages of;

* Pooling of resources; Joe’s $250,000 and Paul’s $50,000 * Low cost
* Little regulation (not required to submit public financial statements or lodge annual returns) * Flexible
* No partnership tax
However, when considering the security of a partnership, the disadvantages raise concerns about how safe an option a partnership is; * Unlimited liability
* Mutual agency – every partner is a mutual agent in the firm, any partner can bind the business to a contract within the scope of its operations. * Co-ownership of property and assets
* Limited-life – if Joe is relying on this business for his income, he would want security of a long-life to ensure yearly income. Under a partnership structure, if you consider the lack of input that Paul Jones wishes to have in the business, it would not be safe for him to assume such significant liability of the business. A company on the other hand has the secure advantage of both limited liability and continuity of existence, but often merits the disadvantages of; * Greater regulation

* Company taxation
* Separation of ownership and control
From the information provided, a company structure most suited to Joe’s photography studio would be a private proprietary limited company and therefore would not be listed on the ASX and not be subject to government regulation such as the requirements under the Australian Securities and Investment Commission and the attached fees. 3. Security of Billabong International as an investment

You expressed concerns about the accuracy of the financial report. Two assurances of its accuracy are its compliance with the International Accounting Standards and the fact that it has been audited by an independent firm. Section 324CF of the Corporations Act 2001 states the specific requirements for an independent audit firm when auditing a company. Price Waterhouse Coopers was the independent auditing firm and complied with these requirements, declaring its independence on page 29 of Billabong’s financial report as required under section 307C of the Corporations Act 2001. Confidence may be found in Billabong’s fulfilment of the legislative requirements. Billabong International Ltd is registered on the Australian Stock exchange and this in itself can give you confidence in the business’s accuracy/reliability because the ASX will only register companies that abide by International Accounting standards and financial reporting requirements. Section 1.8 of the International Accounting Standards requires notes in annual financial...
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